The potential of insurance sector has
not been tapped as it should have been. With a low penetration of less than one
per cent, the industry is still at a nascent stage in consequence of very low
demand. The insurance density (premium per capita) in case of Pakistan hovers
around $6 - a great deal low as compared to its South Asian Region partners.
Insurance forms an important segment of the entire financial sector. With its
role of an institutional investor, this industry assumes an important position
of providing impetus to the capital and money markets. Pakistan Economic Survey,
2007-08 concedes:

With two thirds of the population
living in the rural areas and low per capita income, the insurance sector faces
various hurdles in its growth.

The low insurance penetration
highlights the need for concerted efforts to bring about reforms that would
increase the competitiveness and outreach of Pakistan's insurance industry."

The five to six year period (2002-07)
was the boom period for our financial sector when our commercial banks
registered a record asset growth. The insurance sector couldn't keep pace with
the revolutionary growth process as its total assets stood at a meager Rs.245
billion at the end of the calendar year 2006. In a sharp contrast, the total
assets of scheduled banks at the end of March 2007 stood at Rs.4,317 billion.
The under-performance of insurance sector in our country can be attributed to a
narrow user base which in turn is the outcome of a number of factors for example
lack of awareness, low literacy rate, high tariffs, low disposable income and
above all, the religious taboos. While the low disposable income problem
persists, the emergence of Islamic Insurance has given hope to achieve a
breakthrough. Reaching out to an insurance-unfriendly society is now much easier
with the help of Islamic products.

TAKAFUL RESPONDING TO THE NEEDS OF
GLOBAL FINANCIAL MARKETS

The conventional insurance is perceived
by the majority of Muslims as totally non-Islamic with Riba (interest) and
Gharrar (uncertainty) being its basic ingredients. Takaful has gained acceptance
as a Shariah-compliant alternative to conventional insurance. Islamic Finance
news defines Takaful in the following words:

Based on the principle of mutual
assistance, Takaful provides mutual protection of assets and property and offers
joint risk-sharing in the event of a loss by one of the participants. Takaful is
similar to mutual insurance in that members are insurers as well as the
insured."

Tabarru or Takaful donation forms a
protective firewall for the Takaful participants. Under Tabarru, a participant
by way of a contract agrees to donate a predetermined percentage of his
contribution to a Takaful Fund with the intention to provide support in case of
a loss to any of the participants thereby fulfilling his obligation of joint
guarantee and mutual help. Takaful also acts as a resource mobilization agent.
New Takaful products are being developed to cater to the changing needs of the
global financial markets.

Due to the lack of proper legislation,
Takaful made a late entry into Pakistan. Having made its debut in Sudan and
Bahrain in late seventies, the idea has found roots in 35 countries of the world
with more than 100 Takaful companies in operation. Malaysia, Indonesia and Gulf
countries are the hub of Islamic Finance activities. The business appeal of the
idea has attracted a number of non-Muslim nations and multi national companies
as well. Beside predominantly Muslim countries, Takaful companies are
operational in Russia, South Africa and a number of European countries. Many of
the other non-Muslim countries throughout the world are also in the process of
establishing Takaful companies. Zurich Takaful Company Limited is being
established under a joint venture agreement between Zurich Financial Services
Group and Abu Dhabi National Takaful Company. Munich-based FWU group has won the
award for best Takaful operator in 2007. Recently, the BankIslami has signed a
strategic cooperation agreement with Pak Qatar Family Takaful Limited and FWU
group to set the stage for the launch of Pakistan's first Shariah-compliant
bancassurance.

In UK, Salaam Halal Insurance was
launched in July this year. It is UK's first Shariah-compliant insurer company
offering Takaful-based motoring insurance. It further plans to launch home
insurance policy scheme. American International Assurance has been licensed by
Bank Negara Malaysia as the first international Takaful operator in Malaysia.

The leading Takaful operator in
Pakistan, Pak Qatar Family Takaful Limited vies for strengthening its presence
in Pakistan. It already has its branches in Karachi, Hyderabad, Lahore,
Islamabad, Faisalabad, Gujrat, Peshawar and Quetta and plans to further expand
its branch network to Sialkot, Multan, Mirpur and Sukkur. The group foresees its
workforce increased to 3000 by the end of 2010.

In Pakistan, Takaful industry is in a
nascent stage. Taking off as late as 2005-06, the industry is presently being
run by three general Takaful operators namely Takaful Pakistan Limited, Pak
Qatar General Takaful and Pak Kuwait Takaful Insurance Company; and one family
Takaful operator Pak Qatar Family Takaful. A few more operators are lined up to
get qualified as market players. With the GCC countries eying Pakistan as a
potential market, the Takaful Industry of Pakistan seems to have a great future.
Unlike conventional insurance, the Takaful concept vies to be a sure starter.
Globally too, the Takaful industry is set to make its presence felt both in the
Muslim and non-Muslim segments of financial markets.